Interview with Sibneft President Eugene Shvidler

7 May 2002

Interview with Sibneft President Eugene Shvidler by RusEnergy news agency, published in Kommersant daily on 7 May 2002

- Sibneft shares have had a good showing on the stock market over the past year and a half. What were the main factors behind this: production performance, a generous dividend policy, competent handling of relations with shareholders and analysts, or aggressive public relations?

- The main factors are steady performance, production growth, and financial results. The Russian market as a whole has made great progress, and within the Russian market investors have revised their outlook upward for several companies. YUKOS and Sibneft above all.

- Is the revision connected with a change of corporate policy?

- First of all, investors have come to see Russia, particularly the oil sector, in a new way. This is related to events in America in September [2001] and the stand taken by Russia. Within the sector, investors have taken note of what different companies are doing. I don't think that, in the case of Sibneft, dividend policy played a key role. Production is the main factor. As for our handling of relations with shareholders and analysts, we have done a large amount of work on this, but it's the basic indicators that make all the difference.

- How much attention does Sibneft pay to projecting its corporate image? Do you have advisers in this field in Russia and in the West?

- We hardly pay any attention to image, just for image's sake. Our general line is that actions should speak for themselves above all. If you behave in a consistent and sound manner for a certain period of time, people will begin to distinguish between actions and image-making.

- Still, information on your actions should reach investors.

- This is what we are working on. It is easier to buy a commodity if you know more about it. Our shares are a commodity for investors and, of course, we are trying to promote then properly. We don't have a single adviser on corporate image. We bring in different consultants in different cases. For example, when we sell bonds, when we look for investors, we have an adviser to sell paper and recommend to us what should be done for this purpose. If we start selling shares, we would have a new consultant. But we don't have PR agencies that advise us on image-making.

- To what extent can the issuer's efforts to build a positive corporate image complement or even supplant in the investor's mind any improvement in basic performance indicators?

- Supplanting is out of the question. They are capable of complementing them, but only if real work is done and the financial results are good. Then it is very important to make investors aware of them. If results are lacking, everything else is futile. It may be helpful for a time, but it is sure to become less and less so with the development of the stock market. Especially since people now have something to choose from.

- After the Enron scandal, some people here have suggested that the capitalization of the more advanced Russian companies is inflated and this poses an additional risk to investors. Is there a danger of "Enronization" of the Russian stock market?

- It's hard for me to comment on that. Sibneft and the Russian market are not connected with Enron. It is not a question of somebody cheating somebody else. Enron was trading on indicators that showed incomes and growth accurately. The price in the market is such as that which people are prepared to pay.

- Considering that Sibneft is interested in making the whole Russian oil and gas sector more attractive to investors, could you give recommendations to other, less-hyped companies on how to form a positive image? What are the most common mistakes oil companies make in working in the stock market?

- I don't think that Sibneft is a "hyped" company. Sibneft is a real company that brings real money to its shareholders. It's not a brand. As for working with shareholders, everything we do is described on our web site. It's available. I wouldn't care to give concrete advice, but apparently what we are doing helps. We are an example, and YUKOS is even more of an example perhaps.

- Is YUKOS following in the steps of Sibneft?

- YUKOS is doing pretty much the same as we are. But actually, one doesn't need to invent anything. All of this has been done by somebody, sometime, before. So, if other companies do as we do, we would only welcome it. By the way, Mikhail Khodorkovsky recently said something similar about the new LUKoil policy. I subscribe to this.

- Do you think it was a mistake for LUKoil not to embark on reform for so long?

- I don't know if it is a mistake or an original plan. What is a mistake for some may be part of a program for another person. It is hard to say what are the most common mistakes made by oil companies. One common problem is that companies don't want to be transparent. But that is a philosophy, not a mistake. Companies choose for themselves the philosophies by which they live. The worst thing is when image-making replaces real effort. In my view, this is the most serious delusion.

- How do you assess the potential for growth in Sibneft's market capitalization? Have you set yourself capitalization benchmarks for the coming years? What needs to be done to achieve these indices?

- I think the market indicators of Sibneft should be comparable to those of any Western company, at least a regional one. I see no reason for any discount simply on the grounds that it is a Russian company. Our task is to reach the level of Western companies on all counts.

To achieve that goal, we should do what we are doing now. Try to cut costs, to boost sales and labor productivity, to improve reserves, to buy certain things if they bring profit and to sell them if it brings a profit, and all the while, we should grow. Our growth rate of 25-30 percent a year is phenomenal for the world market. Western companies don't grow that fast. But this message should be brought home to the market. So, we will probably see several more dramatic re-evaluations.